Property Investment Dilemma: Hold or Sell? – Expert Insights

The Great Property Debate: Hold or Sell?

Investing in property is an exciting journey! You dive in, brimming with dreams of passive income and long-term wealth. But sooner or later, every property investor faces the big question: hold or sell? It’s a choice that can shape your financial future.

We’re often told, “Never Sell!” but is that really the best advice? Are the selling costs, capital gains tax, and expenses truly that daunting? Let’s break it down and get this right!

The Case for Holding

Holding onto your investment property can feel like a safe bet. The idea is simple: sit back, relax, and watch your property value grow over the years.

Pros:

Long-Term Appreciation: Historically, property values tend to rise. A CoreLogic report shows an incredible 453% increase in Australia’s house values over the past 30 years. That’s some impressive growth!
Tax Benefits: Negative gearing can make holding onto property financially attractive.
Positive Cashflow: This is why we’re in it! We want that money flowing in while our property value increases. Remember, interest rates aren’t always at 6.5%; just 15 months ago, they were around 2%.
It’s Easy! Set it, forget it, and watch your wealth grow.

Cons:

Market Fluctuations: Property markets are like roller coasters with peaks and valleys. Are you ready for the ride?
Opportunity Cost: Holding one property might mean missing out on other lucrative investments. Some markets soar quickly and then stagnate. Is it better to sell and move on?

The Case for Selling

Selling might feel like admitting defeat to some, but it can be a smart move. After all, we only have so much borrowing capacity and cash.

Pros:

Capital Release: Selling frees up capital, allowing you to reinvest in higher-yield opportunities.
Avoiding Downturns: If the market looks shaky or stagnant, selling could save you from potential losses. Remember, property markets don’t grow consistently; they have bursts of growth followed by stagnation.
Timing the Market: There might be times over 30 years when selling a property and investing elsewhere is worthwhile.

Cons:

Transaction Costs: Agent fees, stamp duties, and legal fees can eat into your profits. These costs can add up to around 5-6%.
Market Timing: Predicting market highs and lows is challenging. Get it wrong, and you could miss out on future gains in your current market and end up in a less favorable one.
Tax Implications: Capital gains tax can take a significant chunk of your profit.

Long-Term Growth: Is it a Double-Edged Sword?

Let’s dive deeper into that enticing 453% growth statistic from the CoreLogic report. While this average looks promising, the reality is more nuanced. Consider Melbourne’s 519% growth versus Perth’s 324% increase. Imagine you bought a $400K property:

High Growth Scenario (Melbourne, 519% increase): Your property could now be worth approximately $2,076,000.
Low Growth Scenario (Perth, 324% increase): Your property might only be worth around $1,296,000.

The difference? A whopping $780,000! This disparity highlights the importance of choosing the right market at the right time. Not every investment will turn into a goldmine, and some properties may experience prolonged stagnation. It’s your job as an investor to jump in at the right time.

Now, let’s consider the transaction costs involved in selling a property and buying another one. Suppose you sell your $400K property and purchase a new one in a higher growth area. The costs might include:

Agent Fees: 2.5% of $400K = $10,000
Stamp Duties: Approximately 4% of $400K = $16,000
Legal Fees: Roughly $1,500
Other Costs (e.g., moving, repairs, etc.): $7,500
Total transaction costs: $35,000.

Would you spend $35,000 to make an additional $1.4 million? It sounds like a no-brainer. But remember, this is based on the assumption that the market will perform as expected, which is never guaranteed. However, if the numbers and trends align in your favor, such an investment could significantly outperform simply holding onto a stagnating property.

The decision to sell often depends on the property’s potential for short-term growth. If you’re holding onto a property that has grown 60% in the last two years, you’ve had a fantastic run and it might be worthwhile moving to a market that’s heating up.

The True Cost: Opportunity + Transactions

Selling and buying a new property incurs hefty transaction costs. These include agent fees (around 2.5%), stamp duties (approximately 4-5%), and legal fees (roughly $1,500). For a $400K property, you might end up spending $35K to switch investments.

However, the opportunity cost can be even more staggering. Say you hold a stagnating property worth $400K while another area sees a 10% annual growth. After five years, your initial property might still be worth $400K, but the alternative could have grown to over $644K. That’s a $244K loss in potential gains!

Admitting Mistakes: The Hardest Part

Let’s face it. No one likes admitting they got it wrong. For their first investment, many people bought a house and land package or off-the-plan apartment. It might have grown, but now might be the time to move on.

In the world of property investment, selling may be crucial. Holding onto a dud investment out of pride can be costly, both in terms of borrowing ability and tied-up capital. Sometimes, ending it once and for all is better than suffering indefinitely. Think of it like ripping off a Band-Aid. Quick, painful, but ultimately freeing.

Evaluating Your Investment: Objectivity Is Key

So, how do you objectively evaluate your investment?

Performance Check: Regularly assess your property’s value and rental yield. Is it performing as expected?
Market Trends: Stay informed about market trends. Are there signs of stagnation or growth?
Financial Goals: Align your property’s performance with your financial goals. Is it helping you get there?

Practical Insights

Evaluate Regularly: Keep a close eye on your property’s performance. Are you hitting your financial goals?
Diversify: Don’t put all your eggs in one basket. Mix it up with different types of investments or locations.
Stay Informed: Markets change, and so should your strategy. Stay updated on market trends and economic forecasts.

Remember, there’s no one-size-fits-all answer. The best decision aligns with your financial goals, risk tolerance, and market conditions.

So, are you holding or selling? The choice is yours. Let the adventure continue!